Are you ready for home ownership?
Buying a home is likely the largest financial decision you’ll ever make. Like buying a car or any other big-ticket item, you should do your homework, listen to expert advice and approach home buying with realistic expectations.
On the plus side, you can fix up your home the way you like, dedicate space for a growing family, have pets, and see your money grow in value instead of just paying rent.
While all these things are true, home ownership also carries responsibilities. You should buy what you can realistically afford, which includes money for on-going home maintenance, property taxes, insurance and other expenses.
The best advice: buy a home you can afford. Keep up your payments and perhaps increase your earnings. You can always “upgrade” to a better home in the future.
A good place to start: your credit union’s real estate agency experts!
Questions for First-Time Buyers
How much can mortgage afford?
Your monthly mortgage payment will take a big chunk out of your paycheck, just like rent does. On average, a homeowner pays 28 to 32 percent of monthly income to mortgage payments.
What should I budget for other home owner expenses?
Property tax1: rates vary by municipality, but in Pennsylvania residential property taxes range from 1 to 2 percent of the home’s appraised value.
Home maintenance2: amounts vary based on the condition of the home, but nationally the average rate is 1 to 3 three percent of the home’s appraised value
Home insurance3: amounts vary based on the size and condition of the home, but nationally the average rate is 2.5 percent of the home’s appraised value
Your calculation: These expenses added together equal 4.5 to 7.5 percent of the home’s appraised value. For an appraised value of $100,000, that means budgeting an additional $375 to $625 per month.
Sources: 1smartasset.com 2thebalance.com 3Bankrate
How do I qualify for a mortgage?
A mortgage lender looks at your earnings, as well as other benchmarks:
FICO Score: When you make a payment on a credit card, a utility company or a retail store, those businesses report whether you have paid on time – or not. An organization called Fair Isaac Corporation gathers all this information and creates a score card: your FICO score, in a range from 300 to 850. Lenders use FICO scores and credit reports to determine if you are a good credit risk. If you have a FICO of 650 or above, you are likely to merit a loan; scores over 750 get lower interest rates.
Debt-to-Income Ratio: A lender has a rule-of-thumb: overall debt should not be more than 40 percent of your income. If your mortgage payment will be 32 percent of your paycheck, the lender will want all other debt, including car payments, student loans and personal loans, to add up to 8 percent or less.
Tips for Home Buying Success
Get a good agent!
A good real estate agent knows the area well, including proximity to shopping and business centers, quality of schools, crime rates and other information. She or he will know area home prices, and can advise if you are getting a good deal.
Most important, a good agent has your best interests at heart. Our real estate team is built on the same philosophy as our credit union: the welfare of our members and customers comes first. We are dedicated to helping you make good financial decisions, and we’ll be there with you, every step of the way.
Contact a good real estate lawyer.
Buying a home is a legal process, in which one party transfers property to another. You want to make sure that your purchase documents are 100% correct. A good real estate lawyer can cost a thousand dollars or more, but the expense is worth it if your rights and financial interests are protected against future actions.
Our real estate company knows real estate lawyers in the area, and we can make recommendations. You can then meet with the lawyer and make sure you are personally comfortable with having him or her represent you.
“Pre-qualification” means you have visited your credit union or mortgage lender and gone through the initial phases of loan review and gotten approval for a certain amount of money. Sellers give special attention to pre-qualified buyers, since you will be able to move quickly to make a deal.
Have a home-viewing checklist.
When you visit a prospective home, it’s easy to get distracted. Have a checklist in your pocket with your must-have’s and want-to-have’s. Review these with your real estate agent and go over the pros and cons of each home.
Have deposit money ready for your offer.
Speak with your real estate agent and get comfortable with the many steps of the home purchase process. When you’re ready to make an offer on a house, you’ll need to immediately make an “earnest money” deposit check to the seller’s broker, probably 1 to 2 percent of the purchase price, to be first in line to buy.
Get a good home inspection.
The seller may have an inspection report on his home, but it is a good idea to hire your own. A home inspector will check for storm or earthquake damage, roofing quality, faulty wiring and plumbing, termites and other pests. Inspection costs vary but generally are a few hundred dollars. If the inspector finds significant issues, you will want to negotiate to make the seller make repairs or reduce the price.
Your real estate agent can recommend a knowledgeable and reliable inspector.
Do a final walkthrough.
Before you close the deal, take a walk through the house and try to see it with fresh eyes. If the seller has made repairs, make sure they are done. If everything is correct, you are ready to make this house your home!
Are you ready to begin your home buying journey?